Life and Death Planning for Retirement Benefits

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190 Life and Death Planning for Retirement Benefits
2007-7, Section V, the IRS addressed the RMD effects and other details of nonspouse beneficiary
rollovers. Notice 2007-7 was further clarified in a special edition of the IRS’s Employee Plan News
.
Beginning in 2010, plans are required to offer the direct rollover to a Designated
Beneficiary. See s amended by WRERA; C); and “E” below.
B. Types of nonIRA plans. applies to 403(b) plans and governmental 457(b)
plans B), #3) as well as to qualified retirement plans (QRPs).
For ease of reference this section will speak mostly of QRPs, but all
statements apply equally to 403(b) and governmental 457(b) plans.
C. Available only to a Designated Beneficiary. The direct rollover to an inherited IRA is
available only for an “individual who is a designated beneficiary.” A
Designated Beneficiary means an individual (or group of individuals) who are named as
beneficiary(ies) of the plan by the participant or under the terms of the plan. Se
Though a trust is not an individual, “a trust maintained for the benefit of one or more
designated beneficiaries shall be treated in the same manner as a designated beneficiary” for
purposes of the nonspouse beneficiary rollover provision, to the extent provided in rules prescribed
by the Treasury. The IRS has confirmed that Reg. A-5 (see
will apply for purposes of determining whether a trust named as beneficiary is eligible to
use the nonspouse beneficiary rollover under Notice 2007-7, A-16.
Since the option to transfer inherited plan benefits to an inherited IRA is limited to
Designated Beneficiaries, an estate or non-see-through trust will not be able to use the nonspouse
beneficiary rollover to achieve any type of gradual payout from a plan that permits only a lump
sum distribution; the estate or such a trust will be stuck with whatever payout options the plan
allows. The estate or trust can not compel the plan to pay distributions out to the estate or trust
over five years or over what would have been the decedent’s life expectancy ,
even though the minimum distribution rules would have permitted such a payout; see
D. Direct rollovers only. Only direct rollovers C)) to an inherited IRA are
permitted. If the plan distributes funds to the nonspouse beneficiary
instead of to the inherited IRA, then the distribution is taxable and rollover of the
distributed amount becomes impossible. Se A). However, if the beneficiary takes
a partial distribution, he can still have a direct rollover of the rest of the benefits—the part
he did NOT take out of the plan—to an inherited IRA.
E. Must roll to an “inherited IRA.” The nonspouse beneficiary direct rollover may be made
only to an “inherited IRA” (i.e., one titled as described at which is “established
for the purpose” of receiving this distribution. Notice 2007-7, A-13.
Regarding whether such accounts can later be combined with other IRAs inherited from
the same decedent, see
A nonspouse beneficiary can never “roll” an inherited plan to the beneficiary’s own IRA
or Roth IRA, only to an inherited IRA or Roth IRA. If a nonspouse beneficiary rolls a distribution
from an inherited plan into the beneficiary’s own traditional or Roth IRA, the rollover would be
treated as, first, a taxable distribution from the inherited plan (because it is a plan distribution that